Lessons from the gold meltdown

The recent fall in gold prices was an eye opener for investors who encountered drop in asset prices of a 'safe haven' like gold for the first time. This leads to a question whether there is anything like a 'safe haven' in investments? Investment experts may claim that there is no such thing. All investments are subject to risk and risk varies according to the asset class. Traditional avenues such as bank Fixed Deposits (FDs) and post office deposits are less riskier as compared to other avenues such as equities and commodities, which are relatively more riskier. Then how should we plan our investment in a such an environment and should we really go for a less riskier avenue?

We all know that asset prices are determined by demand and supply factor. However, in reality there are many factors that determine the market price. It can be speculating on the future trend, change in business dynamics, government policy, global factors and so on. This can cause a wide fluctuation in prices. We are seeing the same in most of the asset classes other than gold and real estate.

Gold till recently was considered a safe haven especially since it had given more than 20 per cent to 25 per cent percent in the last few years. However, this perception was broken when it fell by more than 25 per cent in a span of less than 10 days. This led investors to think whether there is any safe haven to investment. The other relatively safer asset classes, namely bank FDs and post office deposits, are not giving any real return (that is, return net of inflation).